Tesla (NASDAQ: TSLA) has been one of the hottest stocks of the year, defying trends in the broader markets. Since January 1, Tesla’s stock price has skyrocketed 284.8%, outperforming the S&P 500 by nearly 300%. The stock has gained even more in the past few months, driven in part by strong financial results and expectations of continued impressive growth.
However, Tesla’s lofty stock price may be due for a pullback, and some analysts are expecting a strong pop or even a plunge in the stock soon. The sky-high expectations and frothy market conditions make the stock vulnerable to sharp swings.
First, Tesla’s exceedingly high valuation could be a source of investor disappointment. Tesla’s current stock price of nearly $1,400 puts its price-to-earnings ratio at an astronomical level, far above that of most other major automakers. The market is pricing in Tesla’s strong growth potential, but if the company misses Wall Street’s expectations, the stock could collapse.
Second, Elon Musk’s ambitious plans for the company could be a risk as well. Tesla’s success hinges on its ability to make its manufacturing processes more efficient and innovative solutions like its batteries and software platforms. If these efforts stumble, it could severely dent Tesla’s revenue. Musk also isn’t always the most consistent with his timelines for achieving his goals, which could lead to investor frustration at the lack of progress.
Finally, Tesla’s earnings results could be a source of potential volatility. Despite the impressive growth recently, Tesla still faces difficult decisions in the face of looming competition. What’s more, the company may not have much room for error—even a slight miss on its quarterly earnings could spark a plunge in the stock.
While Tesla’s stock has been red-hot for most of the year, the stock could be poised for a hidden surprise. Investors should consider the potential risks discussed here and be prepared for a strong pop or plunge in the stock price.